Jul 24

Revenue formula for the UAE exchange houses in the new digital world of international remittances

As per the latest data sets revealed by the Central Bank of UAE, outward money remittances from UAE rose 1.1 percent to to hit USD 37.1 billion in the first quarter of 20171.
The UAE Central bank also reported that up to 75 per cent of total remittances, amounting to Dh27.8 billion, were conducted through money exchange companies during the first quarter, a growth of 2.7 per cent from the same period last year, while 25 per cent thereof was done through banks. This goes on to show that the growth in remittances in UAE is led by Money exchange companies.
This is again not counter-intuitive. International remittances from UAE has traditionally been a stronghold of Money exchange houses. Major factors contributing to this trend have been a relatively high rate of unbanked blue-collar expatriate population in the country, competitive remittances rates as compared to the banks and a plethora of offers for their consumers throughout the year. The consumer mix also plays a prominent role. Majority of the consumers of money exchange houses are the blue-collared workers. According to a recent research done by one of the prominent money transfer operators in UAE, unlike their white-collared counterparts, the blue collar workers remit about 70 to 80 per cent of their salaries every month, which is approximately in the $200 to $300 range2. Owing to the competitive offers, small ticket sizes and cut-throat rates, money exchange houses become the channel of choice for this segment.
But factors like low oil prices, weak economic growth in the GCC countries and the strengthening of currencies of the S. Asian countries are putting an immense pressure on the remittances from UAE. In this scenario the money exchange houses will have to further refine the science of growing revenue from remittances.
Let’s look at some of the fundamental building blocks of revenue in this business, viz. consumers and revenue/consumer

While some or most of the above approaches would be already getting implemented by the exchange houses, this is an attempt to introduce structure and coherence to the entire exercise.

Also, it would be prudent to outsource many of the above activities to some of the new age organizations for whom these activities would form a part of their core competencies.  This would require a transition from a traditional “Do it yourself” model to an “open ecosystem” model. For instance, partnership with a payment aggregator which has interlinked mobile wallets at a global scale can come in very handy. A single integration to a cloud-based aggregator can provide an access to new remittance corridors, new partners for those corridors as well as remittances to mobile wallets in one shot.  The shared infrastructure would further lead to cost advantages with low setup costs for new geographies.  Imagine increasing the reach and hence scalability of the organizations manifold over a matter of weeks!!
But perhaps the biggest difference to this business can be brought about by introducing serious analytics. By the way, let’s not fool ourselves here. This business is built on years and years of insights based on invaluable one to one interactions between agents and consumers. But with the business moving towards the cloud based servers, the issue of limited scalability of the branches kicks in and over a period of time  more transactions get routed to mobile wallets and other such instruments.  This leads to fewer human interactions which makes it even more important to strengthen the insights through actionable analytics. This is relatively easy to achieve as there are quite a few operators who provide remittance as a service which involves a bouquet of service including remittances to mobile wallets, Fx services, license cover and even insightful and actionable analytics.
At the end of the day the exchange houses with reach to new customer and corridors, access to new channels like mobile wallets and powered by superior analytics and execution will be the one who thrive in this new age economy and new set of challenges for international remittances. The adoption of cutting edge technology and collaboration between exchange houses and payment aggregators are positive indicators that the international remittance market is entering a new digital era.